How might the Spring Budget 2016 affect your small business?

2 years ago

April was an important month of change in the UK, with the end of the last tax year, the start of a new one, and the Government's Spring Budget being announced. In light of the current economic climate and slowing UK growth, there was some good news for small businesses in the 2016 Spring budget announcement.

Small business owners will be glad for an easing of business rates, reductions in Capital Gains Tax, and a reduction in stamp duty charges for commercial property to help level the playing field that has been tilted against small business. To help business owners, CitizenSafe make it easy for you to access government services online through GOV.UK Verify, including logging into to your personal tax account, managing your tax return and updating your company car tax details - CitizenSafe is a certified identity provider dedicated to the safety and security of your private data.

To help you further, we’ve pulled out some of the key points and deciphered some of the tricky details relevant for small businesses.

1. Corporation Tax Reduced

The rate of Corporation Tax is currently 20%. It was planned to be reduced to 18% by 2020, but is now due to fall even further to 17%. This means that as a business, you will pay less tax on your profits – and therefore you’ll have more finance available to support your company.

2. Business Rate Relief level increased

Business rates are paid by most non-domestics properties, such as offices, factories and shops. You may be able to claim business rate relief from your local council. With the Spring Budget announcement, the rate relief value has been increased from £6,000 to £15,000. As a result, more that 600,000 small and medium-sized businesses (SMEs) won’t need to pay business rates at all – again, leaving more money in your company.

Businesses with a property of a £12,000 or less rateable value will receive 100% relief.

Businesses with a property of a £12,000 - £15,000 rateable value will receive tapered relief.

The threshold for the standard business rate multiplier to a rateable value will be increased from £18,000 to £51,000.

The administration of business rates is set to be modernised, including more frequent business rate revaluations.

3. Commercial stamp duty reformed

Following a previous budget announcement, stamp duty rates moved from a slab system to a slice system on 17th March - this means that instead of a having a single percentage applied to the entire value of a property, a percentage that was dependant on the price of the property (a slab system), different percentages will be applied to portions of the property price that land within each rate band (a slice system). For example, a 0% rate will be applied to purchases up to £150,000, 2% will be charged on the subsequent £100,000 (the value between £150,000 to £250,000) and a 5% top rate on any remaining portion above £250,000. For smaller businesses, this may mean that you'll pay less tax when purchasing property for your company.

4. Fuel Duty frozen

Also know as fuel tax or petrol tax, Fuel Duty is an excise tax on petrol and diesel for transportation (i.e. motorists, including goods transportation and delivery). This will be frozen for the sixth year running at 57.95p per litre. As a result, you could save an average of £75/year, per driver in your company.

5. Capital Gains Tax cut

This is a tax paid on the profit you make when selling or ‘disposing of' an asset that has increased in value - a tax on the financial gain that you’ve made - tax-free assets and tax-free allowances excluded. From April 2016, higher rate Capital gains tax is reduced from 28% to 20%, while basic-rate is reduced from 18% to 10%. Once again, leaving more money in your business.

6. Class 2 National Insurance contributions abolished

Self-employed workers will be pleased with the announcement that, as of April 2018, Class 2 NI contributions will be scrapped. Currently, if you’re self-employed, you have to pay £2.80 per week if you earn more than £5,965 profit per year. Removing this will result in an annual tax cut of £130 per person!

7. A crackdown on foreign firm tax evasion - VAT.

Loopholes are being closed to prevent overseas companies storing and selling products in the UK, which are then being sold, whilst not paying VAT. This is targeted at merchants selling products through platforms such as Amazon and eBay, and is hoped to support the UK’s enterprising entrepreneurs by preventing them from being unfairly undercut both online and on the high street.

8. Further crackdown on foreign firm tax avoidance - BEPS

Base Erosion and Profit Shifting (BEPS) is the name given to the tax avoiding strategies of multinational companies (MNEs) that exploit gaps and mismatches in tax rules to shift their profits to low-tax locations - this results in these companies paying little or no corporation tax. The BEPS Project is designed to prevent “double non-taxation” of such multinational companies, and the first actions of this plan will come into play from 1 January 2017.

However, many SMEs operate internationally and are therefore also considered MNEs – resulting in a bit of a grey area since SMEs don’t have the same qualities of MNEs but will be subject to the same regulations. Also, some changes could have a negative impact on SMEs by lowering the threshold for ‘permanent establishments’ and therefore increasing the cost to enter new markets, as well as viewing international contracts with suspicion and therefore increasing legal costs to those business relationships. These aspects are on top of the impact for compliance costs and tax audits.

The take home message for small businesses is to make sure to document everything and ensure that there is a paper-trail of all your contracts, as well as reasons for operating in low-tax regions or forming low-risk entities.

9. Trading allowances introduced

New income allowances from trading and property will be introduced from April 2017 - in both cases, the first £1,000 of income that you earn will no longer need to be declared or have tax paid on it!

10. Insurance premium tax to rise

Insurance Premium tax (IPT) is a tax for insurers that is applied to general insurance premiums including home, car and travel insurance, and is separated in to two bands: a standard rate or 9.5% and a higher rate of 20%. The standard rate applies to home and contents, vehicle breakdown, business, and medical insurances – and this will be raised to 10% as of 1st October 2016. An increase in IPT is likely to result in an increase in insurance premiums for both you and your business.

If you’re the owner or director of a business, these changes may influence how you trade – luckily for you, there is some good news in this list that may be of a financial benefit to your business.

Balancing you business' books is crucial to keeping your business afloat, and an important part of that is your Self Assessment tax return and ensuring that any employees with a company car knows that they need to declare this to HMRC – and with another stroke of luck, both of these can be done online through GOV.UK Verify.

CitizenSafe is one of the Government's certified identity providers working with GOV.UK Verify - we'll prove that you are who you say you are, and help you access government services online. After you've registered with us, you can log in to GOV.UK whenever and wherever you need to.